Demurrer (Judge Peter H. Kirwan)


Case Name:??? Guochen Hou v. County of Santa Clara, et al.

Case No.:??????? 16-CV-291496

In this putative class action, plaintiff seeks a declaration that defendants County of Santa Clara and Santa Clara Valley Medical Center?s standard contracts for emergency room care only permit billing for and collection of the reasonable value of the treatments provided by the hospital, as opposed to the price listed on the master list of itemized charge rates (?Chargemaster?) that defendants employ.? (Class Action Complaint, ?? 1-3.)? Plaintiff seeks to bring this action on behalf of other ?self-pay? emergency care patients, and alleges that the Chargemaster rates applied to such patients average over three times the rates extended to other patients (such as those who are privately insured or covered by governmental health care programs).? (Ibid.)? Plaintiff contends that the language of defendants? contract leaves the pricing term open, and defendants are consequently permitted to seek the reasonable value of their services only.? (Id. at ? 4.)

The complaint sets forth a single cause of action for declaratory relief.? Plaintiff seeks a declaration that (1) defendants? billing practices are unfair, unconscionable, and/or unreasonable, (2) defendants? contract contains an ?open price? term, and does not permit them to bill self-pay patients at the Chargemaster rates, and (3) plaintiff and other class members are liable to defendants for no more than the reasonable value of the services provided to them.? (Complaint, ?? 36-38.)? Currently at issue is defendants? demurrer to the complaint for failure to state a claim.? (Code Civ. Proc., ? 430.10, subd.?(e).)

Defendants contend that there is no actual controversy between the parties because they have not yet filed suit against plaintiff to collect on his unpaid bill, and that declaratory relief is inappropriate because the parties do not have a continuing contractual relationship and plaintiff?s action will not resolve the ultimate question of the specific amount he owes to defendants even if it is successful.? They further urge that plaintiff is improperly seeking to pre-empt their own claim for breach of contract.

As an initial matter, it is clear that the Court would be within its discretion to issue declaratory relief here.? ?The interpretation of a contract is clearly a proper subject of declaratory relief.? ?(Southern Cal. Edison Co. v. Superior Court (Energy Development and Construction Corp.) (1995) 37 Cal.App.4th 839, 846; Code Civ. Proc., ? 1060 [?Any person interested ? under a written instrument, excluding a will or a trust, or under a contract ? may ? bring an original action ? for a declaration of his rights and duties ?, including a determination of any question or validity arising under such instrument or contract?].) ?This is the case whether or not a breach of contract has yet occurred, and whether or not additional remedies are available. ?(See Code Civ. Proc., ?? 1060, 1062.) ?While the court has discretion to refuse to grant declaratory relief where unnecessary or improper under the circumstances (Code Civ. Proc., ? 1061), ?[t]he mere circumstance that another remedy is available is an insufficient ground for refusing declaratory relief, and doubts regarding the propriety of an action for declaratory relief pursuant to Code of Civil Procedure section 1060 generally are resolved in favor of granting relief.? ?(Filarsky v. Superior Court (City of Manhattan Beach) (2002) 28 Cal.4th 419, 433.)

Defendants? own primary authority, Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, supports this conclusion.? In Osseous, the appellate court found that where a medical technology developer received an invoice from its marketing company that it disputed, there was an actual controversy that was ripe for adjudication and ?[a]ll of the statutory prerequisites to filing an action for declaratory relief ha[d] been met.?? (At p. 365.)? Nevertheless, Osseous affirmed the trial court?s decision to use its discretion to dismiss the plaintiff?s claim.? The court noted that, because Osseous did not allege an ongoing contractual relationship with the defendant and any practical consequences to the parties? future behavior were speculative, the parties? dispute was not one that the court was required to hear.? (At p.?375.)? It further noted that ?[t]he fact that [the defendant] had not yet filed a breach of contract action mere weeks after the dispute arose ? did not suggest the dispute would not be resolved in a timely fashion or that such remedy will be otherwise insufficient.?? (At p. 375.)? Osseous held that, in exercising its discretion to issue declaratory relief interpreting a contract, a trial court should consider whether a potential defendant to a breach of contract action is seeking to ?preempt? its contractual partner by filing suit in a preferred venue, rather than acting out of ?concern that judicial guidance [is] needed and [will] not be forthcoming absent the filing of a declaratory relief action.?? (At pp. 375-376.)

Here, as defendants themselves emphasize, there is no indication that a breach of contract action will ever be filed.? Plaintiff alleges that defendants? practice is to ?bill[] and take[] to collection actions to force self-pay emergency care patients to pay its unreasonable, unlawful, and grossly excessive Chargemaster rates,? rather than to sue for breach of contract.? (Complaint, ? 19.)? Although plaintiff received services from the hospital on March 9, 2015, it is undisputed that, more than a year later, defendants have not sued him for breach of contract.? Consequently, it appears that plaintiff is acting out of a genuine concern that he and other class members will be harmed by defendants? collection efforts without the benefit of judicial guidance on the interpretation and enforceability of the price term in defendants? contract, rather than in an effort to forum-shop.? Osseous is accordingly distinguishable.

Directly on point is an opinion that was recently ordered to be published, Moran v. Prime Healthcare Management, Inc. (Cal. Ct. App., Sept. 14, 2016, No. G051391) 2016 WL 5815785 (which plaintiff submitted as supplemental authority in support of his opposition).? Moran also involved the court?s consideration of a demurrer to a putative class action seeking a declaration that a hospital?s billing practices related to self-pay patients were unfair, unreasonable, and illegal and that such patients were liable for no more than the reasonable value of the services provided.? (At *11.)? While the court rejected on its merits the claim that the hospital?s contract could reasonably be construed to limit charges to the reasonable value of the services provided, it held that the trial court erred in dismissing the claim for declaratory relief based on unconscionability, noting that the plaintiff sought ?to prohibit defendants from future attempts to collect unconscionable amounts for his medical care.?? (At *12.)

Defendants attempt to distinguish this authority by arguing that plaintiff has abandoned his request for relief based on unconscionability by focusing on his ?open price term? theory in his opposition and because plaintiff does not seek a determination of the dollar amount of the reasonable value of the services he received.[1]? But plaintiff never indicated that he would abandon his unconscionability theory, and it is common for a declaratory relief action to seek the interpretation of a contractual term rather than the calculation of damages under the contract.? (See Southern Cal. Edison, supra, 7 Cal.App.4th at p. 846.)? Furthermore, even if plaintiff abandoned his unconscionability theory, his ?open price term? theory remains viable.? The Court in Moran rejected that plaintiff?s ?open price term? theory (which was based on different contractual language than the language at issue here) on its merits, not because it was an improper subject of declaratory relief.? Here, defendants have not challenged plaintiff?s claim on its merits.

Defendants? demurrer is accordingly OVERRULED.

[1] Contrary to defendants? argument, plaintiff does seek a declaration that defendants? contract does ?not permit [them] to bill and demand payment from self-pay emergency care patients at [their] Chargemaster rates.?? (Complaint, ? 37.)